Correlation Between Formosa Plastics and Channel Well

Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Channel Well at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Formosa Plastics and Channel Well into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Formosa Plastics Corp and Channel Well Technology, you can compare the effects of market volatilities on Formosa Plastics and Channel Well and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Formosa Plastics with a short position of Channel Well. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Channel Well.

Diversification Opportunities for Formosa Plastics and Channel Well

-0.66

Correlation Coefficient

Formosa Plastics  Channel Well

Excellent diversification

The 3 months correlation between Formosa and Channel is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Channel Well Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Channel Well Technology and Formosa Plastics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Formosa Plastics Corp are associated (or correlated) with Channel Well. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Channel Well Technology has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Channel Well go up and down completely randomly.

Pair Corralation between Formosa Plastics and Channel Well

Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Channel Well. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Plastics Corp is 1.09 times less risky than Channel Well. The stock trades about -0.19 of its potential returns per unit of risk. The Channel Well Technology is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  7,780  in Channel Well Technology on October 8, 2024 and sell it today you would lose (510.00) from holding Channel Well Technology or give up 6.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Formosa Plastics Corp  vs.  Channel Well Technology

Formosa Plastics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Plastics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Channel Well Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Channel Well Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Channel Well may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Formosa Plastics and Channel Well

The main advantage of trading using opposite Formosa Plastics and Channel Well positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Channel Well can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Channel Well will offset losses from the drop in Channel Well's long position.

The idea behind Formosa Plastics Corp and Channel Well Technology pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.